September 2017 – Latin Tag Axed. Third Party Rights Reborn

Author: Mitchells Roberton
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The Contract (Third Party Rights)(Scotland) Bill (“the Bill”)

  • The Bill was passed by the Scottish Parliament on 21st September. 109 votes were cast in favour; there were no votes against; and no abstentions.
  • Something so uncontroversial does sound a bit boring. That was signalled by Graham Simpson, MSP, in the Stage 3 Parliamentary debate:

“I have had a lot of catching up to do on contract law and third party rights. It was not something we talked about much in my previous job as a Scottish Sun journalist, nor is it the big talking point on the number 31 bus in East Kilbride, but it is an important bill.”

Why important? 

  • If A and B both agree on a contract that creates rights and duties between A and B which may be enforced by the courts. In general those rights and duties are only enforceable between A and B. The  idea is that the contractual set-up is exclusive to the parties themselves.
  • But most legal systems have rules which allow the parties to a contract to grant rights to third parties i.e. parties who had nothing to do with agreeing the contract between A and B in the first place.
  • The ability to create third party rights is important. There are many reasons for third party rights to be created and these apply to individuals as much as to business. The Policy Memorandum accompanying the Bill gives some examples of situations where rights in favour of third parties – not only the parties to the contract – may be useful:

“Booking a family holiday for oneself – it may be beneficial for family members other than the person who booked the holiday to be able to enforce rights under the contract; 

Taking out life insurance the proceeds of which are payable to another person – it would be of value to the third party beneficiary to be able to enforce terms of the insurance policy in their favour; 

A company within a group taking out an IT contract where it wants all of the companies in the group to be covered – again, it may be helpful if group companies who are not party to the IT contract are able to sue, for example, in relation to losses suffered as a result of any breach of the contract.

The old law about third party rights 

  • In Scotland, the rules on third party rights were based on case law – including a case going back to 1591 (Wood v Moncur) – the law’s ancient lineage is also signalled by its having retained its Latin tag: jus quaesitum tertio.
  • Two particular difficulties – amongst others – were identified with the common law.
  • First, it appeared that third party rights had to be “irrevocable”. In other words, they could not be altered or cancelled in response to changing circumstances. That restricted the freedom of the contracting parties to set up flexible contracts at the outset and to adjust contracts in response to future events.
  • Secondly, it was not clear whether third parties had a right to claim damages for breach of a third party right.
  • So, section 12 of the Bill axes the common law rules about third party rights – jus quaesitum tertio – and replaces them with a full set of statutory rules designed to avoid the uncertainties of the old common law and provide a clear flexible framework for the future.

Welcome for the Bill 

  • Graham Simpson MSP, the former Scottish Sun journalist quoted at the start of this Note was enthusiastic in welcoming the Bill in the Parliamentary debate and had clearly done his homework in studying the Policy Memorandum also quoted above. He said: 

This is a bill that provides clarity in law, not just for politicians, Queen’s Counsels and judges, but for ordinary men and women in everyday situations in all our constituencies. The bill means that if a family holiday goes wrong, family members who did not book the break themselves but still suffered the holiday from hell will be able to enforce their rights under statute. It means that, under statute, an informal carer will be able to enter into a contract to get building work done on behalf of a client who suffers from dementia and lacks the capacity to make that contract. And it means that a subcontractor who is running a small business and struggling to pay their bills, will have the statutory right to claim payment from the contractor who signed the original contract. For real people, in everyday situations, the bill will ensure fairness and equity.” 

  • One suspects that as a former Sun journalist he would have been able to come up with a snappier headline for this Update than “Latin tag axed” 

Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action. If you would like us to advise you on any of the matters covered in this material, please contact Paul Neilly: pdn@mitchells-roberton.co.uk

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